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Credit derivatives: just-in-time provisioning for loan losses

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  • James T. Moser

Abstract

Credit derivative contracts offer a new route for managing counterparty exposures. This article discusses two formats of these contracts. The contracts have potential for providing portfolio managers with a cost effective, just-in-time source of liquidity.

Suggested Citation

  • James T. Moser, 1998. "Credit derivatives: just-in-time provisioning for loan losses," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 22(Q IV), pages 2-11.
  • Handle: RePEc:fip:fedhep:y:1998:i:qiv:p:2-11:n:v.22no.4
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    References listed on IDEAS

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    1. William F. Bassett & In Sun Geoum & Eli M. Remolona, 1996. "Risk management by structured derivative product companies," Economic Policy Review, Federal Reserve Bank of New York, vol. 2(Apr), pages 17-37.
    2. Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 393-414.
    3. Simon H. Kwan & Randy O'Toole, 1997. "Recent developments in loan loss provisioning at U.S. commercial banks," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue jul25.
    4. Cox, John C. & Ross, Stephen A. & Rubinstein, Mark, 1979. "Option pricing: A simplified approach," Journal of Financial Economics, Elsevier, vol. 7(3), pages 229-263, September.
    5. Smith, Clifford Jr. & Warner, Jerold B., 1979. "On financial contracting : An analysis of bond covenants," Journal of Financial Economics, Elsevier, vol. 7(2), pages 117-161, June.
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    Cited by:

    1. Cavallo, Michele & Majnoni, Giovanni, 2001. "Do Banks provision for bad loans in good times? empirical evidence and policy implications," Policy Research Working Paper Series 2619, The World Bank.
    2. Milind M. Shrikhande & Larry D. Wall, 2000. "Managing the risk of loans with basis risk: sell, hedge, or do nothing?," FRB Atlanta Working Paper 2000-25, Federal Reserve Bank of Atlanta.
    3. Jacques, Kevin T., 2008. "Capital shocks, bank asset allocation, and the revised Basel Accord," Review of Financial Economics, Elsevier, vol. 17(2), pages 79-91.
    4. Drobetz, Wolfgang & Erdmann, Thomas & Zimmermann, Heinz, 2007. "Predictability in the cross-section of European bank stock returns," Working papers 2007/21, Faculty of Business and Economics - University of Basel.

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